The Clayton Act, also known as the Clayton Antitrust Act of 1914, was introduced to correct some of the inadequacies of the previously passed Sherman Act of 1890. The latter legislation was intended to deal with monopolies once they were found to dominate a given market. The Clayton Act changed the dynamic by outlawing some of the practices that would enable a company to become a monopoly.
The Clayton Act dealt with four primary points:
- Price Discrimination — Price discrimination (the practice of charging different prices for identical or nearly identical goods or services) was outlawed when used for the purposes of strengthening a company’s market position.
- Conditional Sales — The Clayton Act prohibited making conditional sales that would restrict customers from dealing with other competing companies. The act mandated that customers should be able to purchase products and services from whomever they choose, at any time.
- Mergers and Acquisitions — The act outlawed mergers and acquisitions where they would substantially weaken the competition among market players.
- Company Officers — Under the Clayton Act, it became illegal to appoint someone as the director of two separate companies if, under other circumstances, merging the two companies would violate the mergers and acquisitions clause of the legislation.
Since passage of the act, regulators have been more successful in preventing monopolies from growing. Having said that, there are a number of monopolistic business models in the US that are not subject to the legislation. For example, public utilities including energy, telephone, Internet and television providers do operate as monopolies in most communities. Professional sports leagues such as the NFL and NBA are also exempt from most antitrust laws.
Some would argue that antitrust legislation is contrary to American capitalism. However, the carefully crafted legislation is an example of using the power of the legislative body to ensure equal opportunity for every business in America. The Clayton Act has, for the most part, been a good thing since its inception.
